Restaurant Metrics and How to Calculate Them

by

Bruce Macklin

What are your restaurant metrics telling you?

Technology gives us access to an abundance of data. Customer data. Performance data.

Operational data. If you wanted, you could use data to measure how much each grain of rice
contributes to your bottom line. If you wanted.

But all metrics aren’t created equal. In this article, we’ll go through 21 essential restaurant
calculations that will keep your restaurant’s profit margins on track, please your customers,
and make sure your operations run as smooth as a whistle.

1. Cost of Goods Sold (CoGS)

What does CoGS measure?

Cost of goods sold, or CoGS, is the cost required to make each menu item you sell. It
represents the total amount you need to spend on inventory and materials to produce your
food and beverage (F&B) sales over a period of time.

Why CoGS is important to measure

CoGS helps you determine whether:

• menu items are priced well or too low

• inventory controls are working
• food costs are too high

Industry standards dictate restaurant CoGS fall between 20% and 40%, usually higher on food
and lower at the bar. By calculating CoGS weekly, you can order inventory more accurately
and take measures to control inventory costs before they start biting into your profit.

How to calculate your CoGS

CoGS for the period =

(Beginning Inventory of F&B) + (Purchases) – (Ending Inventory)
2. Labour Cost Percentage

What does labour cost percentage measure?

Labor cost percentage is the percentage of your revenue that pays for labor.

Why labour cost percentage is important to measure

Labor cost percentage is one of two key components of your prime costs (the other is cost of
goods sold). Together they should make up about 60% of a healthy restaurant’s total costs,
with a healthy labor cost percentage of about 20%–35% of sales.

How to calculate your labor cost percentage

Labor Cost Percentage = Labor / Sales

3. Prime Cost

What does prime cost measure?

Your prime cost is the total sum of your labor costs and your cost of goods sold (CoGS),
including all food and liquor costs.

Why prime cost is important to measure

Prime cost is important to calculate (and monitor with a parent’s eye for fibs) because:

• It represents your largest expenses

• You have control over it (though it can quickly and easily get out of control)
• It affects your entire operations, including how you price your menu, schedule your
staff, create your budget, and establish your goals

Full service restaurants try to keep their prime costs at about 60%. Above 70% means your
costs are too high, and you could quickly find yourself in financial trouble. Below 55% means
you could be sacrificing on quality or running your staff into the ground.

How to calculate your prime cost

Prime Cost = CoGS + Total Labor Cost

4. Break-Even Point

What does a break-even point measure?

Your break-even point is your tipping point, holy grail, and restaurant accounting Everest all
in one. This metric represents how much revenue you need to earn to cover your expenses.

Why a break-even point is important to measure

If you’re consistently spending more than you’re earning, you can kiss your restaurant
goodbye! Once you know your break-even point, you also know when you’ve started
generating profit.

How to calculate your break-even point

Break-Even Point =
Total Fixed Costs / ( (Total Sales – Total Variable Costs) / Total Sales)

5. Food Cost Percentage

What does food cost percentage measure?

Food cost percentage is the difference between what it costs to produce an item and its price
on the menu.

Why food cost percentage is important to measure

Industry standards dictate that restaurants keep a food cost percentage between 20% and
40%, with most restaurants aiming to keep food cost percentage around 30%.

When pricing your menu, it’s important to build out your prices with your ideal food cost
percentage as your base. This way, each dish accounts for the cost of its ingredients and
leaves an acceptable margin for other overhead costs and profit.

Monitoring your food cost percentage on an ongoing basis allows you to catch rising supplier
costs, issues with portioning, spoilage, and shrinkage before any changes affect prime costs
and profits.

How to calculate your food cost percentage for pricing your menu:
Food Cost Percentage = Item Cost/Selling Price

6. Contribution Margin

What does contribution margin measure?

Contribution margin measures how much profit you’re making on one individual menu item.
In other words, it’s the revenue leftover after the cost of ingredients has been subtracted.
Why contribution margin is important to measure

Contribution margin is the dollar amount each dish contributes to your restaurant’s revenue
after the cost of ingredients. Knowing your contribution margins helps you strategically price
menu items.

How to calculate your contribution margin

Contribution Margin = Selling Price – Cost of Ingredients

7. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)

What does EBITDA measure?

In a really small, tough-to-crack nutshell, EBITDA represents earnings that are a result
of operations only. The calculation strips away the effects of financing, accounting, and
capital spending for better comparability between restaurants.

Why EBITDA is important to measure

Generally, EBITDA is a health check on your restaurant’s earnings from its operations. The
metric is also used as a tool to:

• Compare restaurants
• Determine whether to buy, sell, or invest in a restaurant
• Prove operational performance when trying to acquire financing
• Tempt investors to invest in your restaurant

How to calculate your EBITDA

Calculating EBITDA is best left to the experts. But, for your general knowledge, accountants
will calculate EBITDA in one of two ways.

1. EBITDA formula based on operating profit:

EBITDA = Operating Profit + Amortization Expense + Depreciation Expense

2. EBITDA formula based on net income:

EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization

8. Gross Profit & Gross Profit Margin

What does gross profit measure?

Gross profit represents the money your restaurant makes after deducting the costs of goods
sold. It can be shown as number or a percentage (margin).

Why gross profit is important to measure

With CoGS deducted, gross profit tells you how much capital you have left to pay rent, labor,
and other overhead expenses. When used as a key performance indicator, most restaurants
aim for a gross profit margin of around 70%.

How to calculate your gross profit

Gross Profit = Total Revenue – CoGS

Gross Profit Margin = (Gross Profit / Total Revenue) x 100

9. Inventory Turnover Ratio (ITR)

What does inventory turnover ratio measure?

Think of the phrase, “eaten out of house and home.” Inventory turnover ratio refers to the
number of times your restaurant has sold out of its total inventory during a period of time.

Why inventory turnover ratio is important to measure

You need to keep tabs on how often you use your entire inventory to prevent overstocking
or understocking your shelves. Overstocking inventory can lead to waste – of food and money.
Understocking inventory can mean a lot of 86’d menu items and unhappy customers.

Typically, most restaurants that have fresh ingredients aim to turn their inventory over less
than seven days or between four and eight times per month.

How to calculate inventory turnover ratio

Inventory Turnover = CoGs / ( (Beginning Inventory + Ending Inventory) / 2)

Note: (Beginning Inventory + Ending Inventory) / 2 is the equation for Average Inventory.

10. Menu Item Profitability

What does menu item profitability measure?

The calculation for menu item profitability tells you which items on your menu have soaring
profits… and which ones are flopping. Womp, womp.

Why menu item profitability is important to measure

Similar to food cost percentage, menu item profitability is another way to gauge the
performance of a menu item. With that information, you can compare items and make moves
to highlight highly profitable dishes on your menu or focus on upselling.

How to calculate menu item profitability

Menu Item Profitability = (Number of Items Sold x Menu Price) – (Number of Items Sold x
Item Portion Cost)

11. Net Profit Margin

What does net profit margin measure?

Your net profit margin represents the money your restaurant makes after accounting for all
operating costs, including CoGS, labor, rent, equipment, and utilities.

Why net profit margin is important to measure

Well, it’s your profit, so it’s safe to assume you’re interested. Being profitable opens up a
world of possibility for growth, expansion, investors, and even selling your business for a
pretty penny.

Any profit is cause to celebrate, but 6% is the average restaurant profit. Of course, profit
margins vary by concept.

How to calculate your net profit margin

Net Profit Margin = (Gross Sales – Operating Expense) / Gross Sales

Note: (Gross Revenue – Operating Expenses) is your net income. So, this calculation can also
be expressed as: (Net Profit Margin = Net Income / Gross Sales).

12. Overhead Rate

What does overhead rate measure?

Overhead costs are the opposite of prime costs. You can control prime costs, but they’re in
constant flux. Overhead is not. Overhead includes fixed costs and operational expenses like
your rent or mortgage, utilities, property taxes, licenses, fees, and permits. Your overhead
rate is the amount you’re paying for fixed costs over a given period of time.

Why overhead rate is important to measure

They’re not going anywhere. There’s no changing them. They’re evergreen and unmoving.
Building overhead costs into your menu pricing and your daily/weekly/monthly/yearly sales
goals will ensure you’re always covering your bases.

Note: Your overhead rate will fluctuate slightly month to month, and even by week, to
account for holidays and short months.

Generally, restaurants aim for an overhead rate of about 30% of revenue.

How to calculate your overhead rate

Overhead Rate = Total Fixed Costs / Total Amount of Hours Open

13. Average Cover (or Restaurant Revenue per Seat)

What does average cover measure?

Average cover measures the average amount a single customer spends at your restaurant.

Why average cover is important to measure

Average cover tells you how effective your serving staff are at maximizing sales, regardless of
a server’s section size or turnover. You can also use average cover to predict and forecast
future sales by considering the metric alongside your average customer headcount. (More on
this metric next!)

How to calculate your average cover

Average Cover = Total Sales / Number of Covers

14. Average Customer Headcount

What does average customer headcount measure?

Average customer headcount tells you how many customers you’ve served during a specific
period of time.

Why average customer headcount important to measure

By tracking average customer headcount, you can anticipate busy and slow periods. Look at
this metric alongside the average revenue per seat metric to forecast revenue targets and
cash flow projections. Tracking average headcount can help you make better scheduling,
inventory, promotion, and spending decisions.
How to calculate your average customer headcount

If you’re using a mobile POS, you can easily pull this information from your reporting and
analytics dashboard. You can also adjust the time period to see headcounts by time of day,
day, week, month, or season and then compare those numbers year-over-year.

Here are some applications:

When you identify times with consistently higher customer headcounts, you can:

• Schedule extra staff

• Better match inventory with demand
• Run a special or promotion to increase check totals

When you identify times with consistently lower customer headcounts, you can:

• Reduce staff
• Create a marketing campaign to get more people in the door

15. Employee Turnover Rate

What does employee turnover rate measure?

Employee turnover rate refers to the frequency at which employees leave your restaurant
over a period of time, including resignations, dismissals, and retirement. Employee turnover
rate doesn’t include transfers, promotions, or other internal moves.

Why employee turnover rate is important to measure

Your employee turnover rate can expose underlying issues within your workplace,
management function, and culture. A high turnover rate could mean that employees aren’t
happy, your work culture needs some love, or you need to rethink who you’re hiring.

Also, turnover is costly: onboarding new staff takes time, money, and resources. According to
the estimates made by the Center for Hospitality Research at Cornell, staff turnover can cost
as high as $5,864 per employee. For some restaurants, staff turnover could mean as much
as $146,600 annually.

Since the National Restaurant Association reported an average employee turnover rate of
72.9% in 2016, it’s safe to say keeping employee turnover rate down should a priority for
every restaurant owner.

How to calculate your employee turnover rate

Employee Turnover Rate = (Employees Departed / Number of Employees) x 100

(To calculate monthly, quarterly, or yearly turnover, simply adjust your figures to account for
the period you wish to view.)

16. Revenue per Available Seat Hour (RevPASH)

What does revenue per available seat hour measure?

Revenue per available seat hour (RevPASH) measures how each seat in your restaurant is
performing.

Why revenue per available seat hour is important to measure

If a seat is unoccupied, you’re missing a revenue-generating opportunity. At 6:00 pm on a

Friday, you’re likely to have more seats filled than at 2:30 pm on a Monday. When you
measure RevPASH, you take this into consideration.

How to calculate your revenue per available seat hour

First calculate your seat hours.

Seat Hours = Number of Seats x Hours Open

RevPASH = Revenues / Seat Hours

RevPASH on Tuesdays by increasing your turnover or getting more people in the door.

17. Revenue per Square Foot (Sales per Square Foot)

What does revenue per square foot measure?

Average revenue per square foot measures sales volume, an indicator of your profit
generating power.

Why revenue by square foot is important to measure

Revenue per square foot tells you how efficiently you’re generating sales, which can be used
to showcase your potential for expanding your restaurant or adding a location.

According to Bloom Intelligence, benchmarks for a full service restaurant are as

follows: Losing money: $150 or lessBreak-even: $150-$250Profit: $250+ (5%-10% of sales)

How to calculate your revenue by square foot

Sales per Square Foot = Annual Sales / Square Foot

18. Table Turnover

What does table turnover measure?

Table turnover measures the numbers of tables turned over during a specific time period.

Why table turnover is important to measure

A quick turnover means more money in your pocket because you can serve more guests (as
long as you’re busy). By knowing your average table turnover, you can:

• Help staff turn tables more efficiently

• Prepare your kitchen for the evening service
• Equip hosts with more information for reservation scheduling and wait times

There is no one size fits all, but typically you want to turn tables over consistently but
comfortably throughout an evening. If you know the average guest takes two hours to have
dinner and your dinner period goes from 5:00 pm to 10:00 pm, you’d hope to turn all tables
over at least twice.

How to calculate your table turnover

Table Turn Time = Number of Guests Served* / Number of Seats

*During a specific period of time.

19. Time per Table Turn

What does time per table turn measure?

Time per table turn measures the average time a table is seated for.

Why time per table turn is important to measure

Time per table turn has a number of uses. It can:

• Help hosts when taking reservations and providing guests with wait times
• Tell you if servers are turning over tables fast enough to maximize revenue (without
rushing guests, of course)

How to calculate time per table turn

Your POS should track the time between when a server first inputs an order and when that
table cashes out. Using this data, your POS can give you an average time according to
breakfast, lunch, and dinner.

20. Customer Acquisition Cost (CAC)

What does customer acquisition cost measure?

Customer acquisition cost (CAC) is a marketing metric that shows how much it costs you to
get a new customer in the door.

Why customer acquisition cost is important to measure

CAC tells you whether the marketing initiatives you’re running are effective. CAC is especially
useful if you’ve already measured some marketing campaigns and are looking at running new
ones. By comparing the CAC of different campaigns, you can prioritize the campaign types
that have had the best return on investment.

How to calculate your customer acquisition cost

CAC = Marketing Expenses / Total New Customers Acquired

Simple in theory. Not so much in reality. Your marketing expenses have to account for
discounts, human resources, advertising fees, print fees, and more. But counting new
customers that come specifically from your marketing initiatives is a lot easier with a POS that
tracks discounts and coupon codes and can supply helpful reports.

21. Customer Retention Rate

What does customer retention rate measure?

You might be attracting new customers, but are you keeping them? This calculation tells you
how many customers you’ve retained.

Why customer retention rate is important to measure

Acquiring new customers is more expensive than keeping them. Studies show that loyal
customers spend up to 67% more than a new customer. Repeat business shows you’re doing
something right and getting rewarded for it. According to the Harvard Business School,
“increasing customer retention rates by 5% increases profits by 25% to 95%.”

There’s no one size fits all for retention, but the higher the better.

How to calculate customer retention rate

Customer Retention Rate =( (Total Customers – Total New Customers) / Total Customers) x
100